December 30, 2013

Structured settlements are supposed to provide economic security for people with serious injuries and disabilities - to help them rebuild their lives and, in many cases, to achieve special lifetime accomplishments. Instead of an all-cash personal injury settlement, structured settlement recipients accept a promise of future periodic payments.

What happens, if and when, that promise is broken? What happens when a structured settlement funding company, and the regulators and guaranty system responsible for protecting the structured settlement recipients, fail to make and/or insure full payment?

ELNY Liquidation

These questions are highlighted by the Executive Life of New York (ELNY) liquidation - the dominant structured settlement story of 2012 and 2013 and one of the most important developments in the history of the United States structured settlement industry.

The story of ELNY, as well as its affiliate Executive Life of California (ELIC), and their parent company, First Capital Corporation (FEC), is long and complex. For background of events prior to ELNY's 1991 receivership, S2KM recommends Gary Schulte's 1992 book "The Fall of First Executive". For an Executive Life timeline, see the structured settlement wiki.

Significantly, neither the 1991 ELNY Rehabilitation Order nor the 1992 Order approving the ELNY Rehabilitation Plan declared ELNY to be insolvent.

Following 22 years of "Rehabilitation" supervised by various New York State Superintendents of Insurance and Financial Services, as Receivers, ELNY was officially liquidated August 8, 2013 pursuant to an Order of Liquidation signed by Nassau County New York State Supreme Court Judge John M. Galasso on April 16, 2012.

As part of his Liquidation Order, Judge Galasso also approved a Restructuring Agreement, as proposed by ELNY's Receiver and NOLHGA, whereby ELNY's remaining assets and ongoing liabilities have now been transferred to a successor company, Guaranty Associations Benefit Company (GABC), a not-for-profit Washington D.C.-based captive insurance company.

The total percentage of each ELNY SSA contract value "protected" by ELNY's remaining assets, state guaranty fund payments plus additional enhancements varies from 31% to 100% depending upon the individual contract.

In a 2013 blog post titled "An ELNY Nightmare", S2KM profiled Glenn Arensdorf, one of the ELNY structured settlement victims. For profiles of five additional ELNY structured settlement shortfall payees, see "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", the lead article in a comprehensive ELNY analysis published in 2012 by LifeHealthPro.

Faced with significant payment reductions resulting from ELNY's liquidation and restructuring agreement, ELNLY's structured settlement shortfall payees were left with three options:

Accept their payment reductions under the ELNY Restructuring Agreement and do nothing; or,

Appeal Judge Galasso's Order and ask the Appellate Court to send ELNY's Receiver back to drawing board; or,

Bring a separate legal action against the Receiver personally for bad faith conduct, breach of fiduciary duty and fraudulent concealment or waste.

Option 2 failed. The Appellate Division of the Supreme Court of the State of New York, Second Department denied the ELNY shortfall payees' appeal of Judge Galasso's Order on February 6, 2013. New York State Court of Appeals denied a subsequent motion by ELNY shortfall payees for Leave to Appeal the Second Department decision on May 3, 2013.

Option 3 remains unresolved.

Class Action Lawsuit - Several ELNY structured settlement shortfall payees pursued Option 3 by filing a federal class action lawsuit November 8, 2012 in the U.S. District Court for the Southern District of New York against the ELNY Receiver (New York Superintendent of Financial Services Benjamin Lawsky) in his personal capacity.

Receiver's Response - In response, the Receiver filed a motion December 7, 2012 asking the Liquidation Court (Judge Galasso) to find the shortfall payees in contempt for violating the injunction provision of the ELNY Liquidation Order.

Contempt Order - Judge Galasso issued a Contempt Order on January 25, 2013. He also imposed a $5000 fine and threatened additional fines plus imprisonment of legal counsel if the ELNY structured settlement shortfall payees did not dismiss their Federal action which they did (without prejudice) on February 7, 2013.

Bottom Line - So long as Judge Galasso's Contempt Order and continuing threat of additional fines and imprisonment of legal counsel remain in effect, ELNY structured settlement shortfall payees are effectively barred from pursuing Federal legal action against ELNY's Receiver for alleged mismanagement of ELNY's assets during ELNY's 22 year Rehabilitation.

Shortfall Payee's Appeal - ELNY's shortfall payees are currently pursuing an appeal challenging "each and every part" of Judge Galasso's January 25, 2013 Contempt Order as a necessary step before re-filing their Federal action against the Receiver and his agents.

Did the ELNY Liquidation Court exceed it subject matter jurisdiction or otherwise err by interfering with shortfall payees' constitutional right to bring suit against the Receiver in Federal court?

Did the ELNY Liquidation Court err in holding the shortfall payees in contempt for violating its injunctive Order when the order does not clearly and unequivocally bar personal capacity suits against the Receiver?

Did the ELNY Liquidation Court err in holding that the shortfall payees conceded the Order barred personal capacity lawsuits by appealing the order and using this alleged concession as the basis to hold the shortfall payees in contempt?

Reliance Liquidation

Reliance Insurance Company was declared insolvent in 2001 and the Pennsylvania Insurance Commissioner was appointed as Liquidator. The Reliance Estate, however, remains open and its assets, until November 4, 2013, included approximately 3,400 structured settlements of which approximately 3093 involve annuities issued by United Pacific Life Insurance Company, a former Reliance subsidiary which Reliance sold in 1993 and which is now known as Genworth Life Insurance Company.

Pennsylvania Commonwealth Court Judge Bonnie Brigance Leadbetter signed an Order on November 4, 2013 approving a Transfer and Assumption Agreement whereby Reliance will transfer all Reliance-owned structured settlement annuity contracts and corresponding payment obligations issued by Genworth Life Insurance Company to a new corporation, the Genworth Annuity Service Corporation.

November 19, 2013

The Guaranty Association Benefits Company (GABC), successor to liquidated Executive Life Insurance Company of New York (ELNY), has published two versions of a final liquidation date Schedule 1.15 on its website.

Prior to ELNY's liquidation, the New York Superintendent of Financial Services filed a preliminary Schedule 1.15 for the proposed ELNY Restructuring Agreement with the Supreme Court of Nassau County New York on November 7, 2011.

Judge John M. Galasso issued a Memorandum Decision April 16, 2012 declaring ELNY to be insolvent and signed a separate order: 1) approving the ELNY restructuring plan as proposed by the Superintendent and the National Organization of Life & Health Guaranty Associations (NOLHGA); 2) converting the ELNY proceeding from rehabilitation to liquidation; and 3) appointing the Superintendent as ELNY's liquidator.

Under the ELNY restructuring plan, participating state life and health guaranty associations (PGAs) and certain life insurance companies formed GABC, a new special purpose not-for-profit captive insurance company under the laws of the District of Columbia to replace ELNY once it was liquidated on August 8, 2013. The PGAs agreed to supplement the ELNY benefit payments for annuity contracts eligible for state guaranty association coverage up to the maximum allowable by their state guaranty association laws. The various participating life companies agreed to provide additional enhancements and have set up an ELNY Hardship Fund.

The final Schedule 1.15 lists all of ELNY's current annuities, with the names of the annuity owners and payees redacted. Schedule 1.15 includes additional information such as individual contract identification numbers, the proposed "uncovered amount" (shortfall) and "total percentage of contract protected" assuming contributions from state life and health insurance guaranty associations and certain supplemental enhancements.

All PGA coverage is applied on a present value basis, according to the Schedule 1.15 footnotes, which also indicate that present values were calculated as of August 8, 2013 by Towers Watson using a 4.25% discount rate. The final Schedule 1.15 provides separate annuitant IDs, beginning with an "F", when evidence exists that some or all of the payment rights under an annuity have been transferred to a factoring company.

1504SSAs - Note: this number represents 98% of 1504 ELNY shortfall annuities and indicates 37% of all 4057 ELNY SSAs will experience shortfalls.

29 SPIAs.

8 pension annuities.

For the 1504 Schedule 1.15 SSAs with shortfalls:

Factoring transactions - Part or all of 407 SSA payment rights (27% of 1504) are estimated to have been transferred in factoring transactions. Note: reliable industry sources have informed S2KM the actual number of current ELNY SSAs previously factored is considerably higher.

$100,000 + - 1090 SSAs (72% of 1504) have "uncovered amounts" in excess of $100,000 each on a present value (PV) basis including

$1,000,000 + - 249 SSAs (17% of 1504) which have "uncovered amounts" in excess of $1,000,000 PV each including

The total percentage of each ELNY SSA contract value "protected" by ELNY's remaining assets, state guaranty fund payments plus additional enhancements varies from 31% to 100% depending upon the individual contract.

These final Schedule 1.15 numbers differ from the previously published Schedule 1.15 as reported by S2KM. Possible explanations:

More factoring transactions (407 vs.156) are included as separate line items in the final Schedule 1.15.

Some ELNY annuity payees may have died since ELNY's August 8, 2013 liquidation date.

Present value categories may have shifted from covered to uncovered and vice versa based on interim payouts.

GABC's actual and/or projected investment returns and expenses (which have been reported) may be different than previously projected.

August 16, 2013

"People should know when they are conquered." - Quintus in "Gladiator"

"It ain't over till it's over." - Yogi Berra

Following 22 years of "Rehabilitation"
supervised by various New York State Superintendents of Insurance and
Financial Services, as Receivers, Executive Life Insurance Company of
New York (ELNY) was officially liquidated August 8, 2013 pursuant to an Order of Liquidation signed by Nassau County New York State Supreme Court Judge John M. Galasso on April 16, 2012.

As part of his Liquidation Order, Judge Galasso also approved a Restructuring Agreement,
as proposed by ELNY's Receiver and NOLHGA, whereby ELNY's remaining
assets and ongoing liabilities have now been transferred to a successor
company, Guaranty Associations Benefit Company (GABC), a not-for-profit
Washington D.C.-based captive insurance company.

As a result of ELNY's liquidation and restructuring, approximately 1456 structured settlement payees will experience payment shortfalls totaling approximately $920 million
(present value) following contributions from state life and health
insurance guaranty associations and various life insurance companies.

ELNY Receivers' Responsibilities

Significantly, ELNY's 1991 Rehabilitation Order did not result because of ELNY's insolvency. Instead, then New York Insurance Superintendent Salvatore Curiale's stated concern was a "run" on ELNY assets by policyholders.

Beginning
with ELNY's 1991 Rehabilitation Order and continuing to ELNY's August
8, 2013 liquidation date, Superintendent Curiale and his successor New
York Superintendents of Insurance and Financial Services managed ELNY's Rehabilitation
(in their capacity as Receivers not regulators) with day-to-day
management responsibilities assigned to their agent, the New York
Liquidation Bureau (NYLB).

Until December 17, 2010, however, when Judge Galasso issued an ex parte Order to Show Cause
seeking an ELNY liquidation plan, ELNY's Receivers had not filed a
single report with the court or made any efforts to inform policyholder
or payees about ELNY's declining financial position. As of December 31,
2010, ELNY's audited financial statements show ELNY had
assets of $905,945,200 compared with liabilities of $2,474,317,342,
resulting in a negative surplus of $1,568,372,142.

During ELNY's March 2012 Liquidation Hearing, Judge Galassoruled against ELNY shortfall payees'
attempts to determine how and why ELNY had suffered such losses
reasoning such issues were beyond the scope of the hearing. To further
protect the Receiver, Judge Galasso's April 16, 2012 ELNY Liquidation
Order contained immunity and injunction provisions proposed by ELNY's Receiver.

Although
the Receiver represented these provisions did not immunize him from
liability outside his Article 74 duties, structured settlement shortfall
payees expressed concern the broad language of the immunity and injunction provisions
could insulate the Receiver from liability beyond the scope of Article
74. They also believed, contrary to the Receiver's representations, that
Article 74 prohibits not just bad faith conduct but also conduct
without appropriate care and prudence.

ELNY Shortfall Payees' Options

Faced
with significant payment reductions resulting from ELNY's liquidation
and restructuring agreement, ELNLY's structured settlement shortfall payees were left with three options:

Accept their payment reductions under the ELNY Restructuring Agreement and do nothing; or,

Appeal Judge Galasso's Order and ask the Appellate Court to send ELNY's Receiver back to drawing board; or,

Bring
a separate legal action against the Receiver personally for bad faith
conduct, breach of fiduciary duty and fraudulent concealment or waste.

Option 2 failed. The Appellate Division of the Supreme Court of the State of New York, Second Department denied the ELNY shortfall payees' appeal of Judge Galasso's Order on February 6, 2013. New York State Court of Appeals denied a subsequent motion by ELNY shortfall payees for Leave to Appeal the Second Department decision on May 3, 2013.

Option 3 faces a significant judicial roadblock - a Contempt Order with the threat of fines plus imprisonment of legal counsel.

Prior to this Contempt Order, several ELNY structured settlement shortfall payees pursued Option 3 by filing a federal class action
lawsuit November 8, 2012 in the U.S. District Court for the Southern
District of New York against the ELNY Receiver (New York Superintendent
of Financial Services Benjamin Lawsky) in his personal capacity. In
response, the Receiver filed a motion
December 7, 2012 asking the Liquidation Court (Judge Galasso) to find
the shortfall payees in contempt for violating the injunction provision
of the ELNY Liquidation Order.

Judge Galasso issued a Contempt Order
on January 25, 2013. He also imposed a $5000 fine and threatened
additional fines plus imprisonment of legal counsel if the ELNY
structured settlement shortfall payees did not dismiss their Federal action which they did (without prejudice) on February 7, 2013.

Bottom line:
so long as Judge Galasso's Contempt Order and continuing threat of
additional fines and imprisonment of legal counsel remain in effect,
ELNY structured settlement shortfall payees are effectively barred from
pursuing Federal legal action against ELNY's Receiver for alleged mismanagement of ELNY's assets during ELNY's 22 year Rehabilitation.

Appeal of Contempt Order

As a result, ELNY's shortfall payees are currently pursuing an appeal challenging "each and every part"
of Judge Galasso's January 25, 2013 Contempt Order as a necessary step
before re-filing their Federal action against the Receiver and his
agents.

On August 9, 2013, Attorney Edward Stone filed a preliminary
brief with the New York Supreme Court, Appellate Division, Second
Department on behalf of ELNY structured settlement shortfall payees
Jeanice Dolan, Keith Vincent, Daniel Malin and their attorneys.

The appellate brief filed on behalf of the ELNY shortfall payees addresses three legal issues:

Did
the ELNY Liquidation Court exceed it subject matter jurisdiction or
otherwise err by interfering with shortfall payees' constitutional right
to bring suit against the Receiver in Federal court?

Did the
ELNY Liquidation Court err in holding the shortfall payees in contempt
for violating its injunctive Order when the order does not clearly and
unequivocally bar personal capacity suits against the Receiver?

Did
the ELNY Liquidation Court err in holding that the shortfall payees
conceded the Order barred personal capacity lawsuits by appealing the
order and using this alleged concession as the basis to hold the
shortfall payees in contempt?

S2KM will summarize
the ELNY shortfall payees' arguments for each of these issues in a
subsequent blog post. For S2KM's complete ELNY reporting, see the structured settlement wiki.

July 26, 2013

New York Superintendent of Financial Services Benjamin Lawsky, as Receiver for Executive Life Insurance Company of New York (ELNY), has announced the proposed liquidation date and the proposed date of closing of the ELNY Restructuring Agreement will be August 8, 2013.
ELNY's shortfall payees, including hundreds of structured settlement
recipients, can expect their payment reductions to take effect shortly
thereafter.

ELNY first entered rehabilitation
in 1991 when then New York Insurance Commissioner Salvatore Curiale
obtained a Court Order seizing control of the company. The Nassau New
York State Supreme Court approved a Plan of Rehabilitation for ELNY in
1992. Neither the ELNY Order of Rehabilitation in 1991 nor the ELNY Plan
of Rehabilitation in 1992 determined that ELNY was insolvent.

Under the Rehabilitation Plan,
owners of ELNY single premium deferred annuities (SPDA), interest
sensitive life policies, whole life policies and term policies were
given the option to have Metropolitan Life Insurance Company (MetLife)
assume their policies. However, all of ELNY's single premium immediate
annuities (including all ELNY structured settlement annuities) remained
with ELNY under the supervision of the Insurance Superintendent and his
agent, the New York Liquidation Bureau (NYLB). The Rehabilitation Plan
named MetLife as Administrator of the ELNY single premium immediate
annuities (SPIAs) and payees continued to receive their scheduled
annuity payments as part of the Rehabilitation Plan.

The first public announcement
that ELNY was experiencing financial problems during its Rehabilitation
occurred in December of 2007 when then New York Governor Eliot Spitzer
reassuringly announced an “Agreement in Principle” designed to continue paying all ELNY annuitants 100 percent of their benefits. Unfortunately, the “Agreement in Principle” never materialized.

The first audited financial statements
for ELNY during its Rehabilitation were released in 2009 for years 2006
and 2007. Those financial statements showed that, as of December 31,
2007, ELNY had assets of $1,344,729,904 and liabilities of
$2,538,548,125 resulting in a negative surplus of $1,193,818,221.
Subsequent financial statements for years 2008-2010 indicated a
deteriorating financial condition. As of December 31, 2010, ELNY had
assets of $905,945,201 and liabilities of $2,474,317 resulting in a
negative surplus of $1,568,372,142.

On December 17, 2010, Nassau County New York State Supreme Court Judge John M. Galasso issued an Order to Show Cause
requiring New York's Insurance Superintendent to present the Court with
a proposed Order and Plan of Liquidation for ELNY on or before July 1,
2011. As justification for ELNY's proposed liquidation, the Petition, which was ultimately filed September 1, 2011, stated: “ELNY's financial condition is progressively deteriorating” and “ELNY
will be unable to pay its outstanding lawful obligations as they mature
in the regular course of business and further efforts to rehabilitate
ELNY are futile . . . . the unprecedented global economic crisis and
resulting market collapse of 2008 had a significant negative impact on
ELNY's retained assets and made continued implementation of the
Rehabilitation Plan without a liquidation unfeasible."

The ELNY Restructuring Plan
submitted to, and approved by, Judge Galasso was jointly prepared by
the Superintendent and the National Organization of Life and Health
Guaranty Associations (NOLHGA). Under the Restructuring Plan,
participating state life and health guaranty associations (PGAs) and
certain life insurance companies have formed a new special purpose
not-for-profit captive insurance company under the laws of the district
of Columbia to replace ELNY once it is liquidated. The PGAs have agreed
to supplement the ELNY benefit payments for annuity contracts eligible
for state guaranty association coverage up to the maximum allowable by
their state guaranty association laws. The various participating life
companies have agreed to provide additional enhancements and have set up
an ELNY Hardship Fund.

The Restructuring Plan includes Schedule 1.15
listing all of ELNY's current annuities, with the names of the annuity
owners and payees redacted. Schedule 1.15 includes additional
information such as individual contract identification numbers, the
proposed "uncovered amount" (shortfall) and "total percentage of contract protected"
assuming contributions from state life and health insurance guaranty
associations and certain supplemental enhancements. Following the
Schedule 1.15 filing, the NYLB sent informational notices to each ELNY annuity payee and published weekly notices in the New York Times and the Wall Street Journal.

Judge Galasso signed the ELNY Order of Liquidation
and Approval of the ELNY Restructuring Agreement on April 16, 2012 (as
proposed by the Superintendent and despite objections by several
structured settlement payees and their attorneys) following a two week
hearing March 15-30, 2012.

The anticipated shortfalls resulting from the ELNY liquidation and restructuring were expected to total $920,641,977
on a present value basis as of April 16, 2012. This figure assumed
promised state guarantee association payments and enhancements but did
not include possible payments from the ELNY Hardship Fund and/or from structured settlement defendants
who negotiated and promised to pay future periodic payments funded with
ELNY annuities. As a result, approximately 15 percent of the ELNY
annuitants are expected to experience an average present value loss of
more than $600,000 per annuitant. The remaining ELNY annuitants are not expected to experience any reduction in their payments.

As part of his ELNY Liquidation Order, Judge Galasso granted judicial immunity "to
the Receiver and his successors in office, the New York Liquidation
Bureau, and their respective attorneys, agents and employees, ... for
any cause of action of any nature against them, individually or jointly,
for any action or omission by any one or more of them when acting in
good faith, in accordance with this Order, or in the performance of
their duties pursuant to Insurance Law Article 74 ..."

The Order also enjoined all persons "from
commencing or further prosecuting any actions at law or other
proceedings against ELNY or its assets, the Receiver or the New York
Liquidation Bureau, or their present or former employees, attorneys, or
agents, with respect to this proceeding or the discharge of their duties
under Insurance Law Article 74."

Subsequent ELNY-related litigation and court filings followed:

Appeal of Liquidation Order
- On March 30, 2012, attorneys representing ELNY structured settlement
shortfall payees filed a Notice of Appeal challenging the ELNY
Liquidation Order and Restructuring Agreement. Both the Appellate
Division of the Supreme Court of the State of New York, Second
Department and the New York State Court of Appeals subequently denied
this Appeal.

Class Action Lawsuit
- On November 8, 2012, attorneys representing ELNY structured
settlement shortfall payees filed a class action lawsuit in the United
States District Court Southern District of New York against
Superintendent of Financial Services of the State of New York, in his
non-regulatory capacity as ELNY's Receiver, including predecessor ELNY
Receivers, Metropolitan Life Insurance Company (MetLife) and Credit
Suisse Group, AG (Credit Suisse) as defendants. The class action
Complaint alleged the defendants' mismanagement and misconduct had
caused the plaintiffs' ELNY payment shortfalls.

Contempt Order
- On December 7, 2012, responding to the ELNY shortfall payees' class
action lawsuit, Superintendent Lawsky filed a Notice of Motion seeking
to enforce Judge Galasso's ELNY injunctions and to hold the ELNY
shortfall payees' attorneys in contempt of Judge Galasso's ELNY Liquidation
Order. On January 25, 2013, Judge Galasso issued an Order holding the ELNY
shortfall payees' attorneys in contempt of court and imposing a fine for
filing the class action lawsuit.

Dismissal of Class Action
- As a result Judge Galasso's Contempt Order, the ELNY shortfall payees
voluntarily dismissed their class action lawsuit on February 7, 2013
without prejudice thereby preserving their right to re-file claims and
tolling the statute of limitations.

Appeal of Contempt Order
- On February 14, 2013, three ELNY structured settlement shortfall
payees and their attorneys filed a Notice of Appeal challenging Judge
Galasso's Contempt Order. That Appeal currently remains unresolved.

May 03, 2013

The New York State Court of Appeals (Court of Appeals), New York's highest judicial authority, has denied a Motion for Leave to Appeal a February 6, 2013 decision bythe
Appellate Division of the Supreme Court of the State of New York,
Second Department which rejected a legal challenge by Executive Life of
New York (ELNY) structured settlement shortfall payees to the ELNY Order
of Liquidation and Approval of the ELNY Restructuring Agreement signed
by New York State Supreme Court Judge John M. Galasso on April 16, 2012.

The appeal challenging the merits of the ELNY Liquidation Order had raised three primary issues each of which the Court of Appeals' decision effectively rejected:

Due Process - "Did
inadequate notice and the denial of information to Objectors (ELNY
structured settlement shortfall payees), along with the selective
application of the Civil Practice Law and Rules, deny Objectors a fair
hearing as required by principles of due process?"

Immunity - "Did
the Supreme Court exceed its subject matter jurisdiction or otherwise
err in granting immunity to the Receiver and others in their personal
capacities, where such immunity is not provided for by statute, is
inconsistent with the common law, and is unsupported by evidence?"

Injunction - "Did
the Supreme Court exceed its jurisdiction or otherwise err in
permanently enjoining claims against the Receiver and others in their
personal capacities, where such injunction is not provided for by
statute or the common law, and no evidence was adduced at the hearing?"

The Court of Appeals decision effectively ends litigation challenging the merits of the ELNY Liquidation Order
and permits the National Organization of Life and Health Insurance
Guaranty Association (NOLHGA) to proceed with the ELNY Restructuring
Agreement including substantial annuity payment reductions for more than
1400 structured settlement recipients.

ELNY Contempt Order and Class Action Lawsuit

Another anticipated result
of the Court of Appeals decision will be the filing of a brief by legal
counsel for three ELNY structured settlement shortfall payees (objector
respondents) to perfect their appeal of a Contempt Order
issued January 25, 2013 by Judge Galasso. Based upon previous court
filings and out-of-court statements, they are expected to argue that
Judge Galasso's Contempt Order violates the United States Constitution.

Following Judge Galasso's Contempt Order, attorneys representing the structured settlement shortfall payees voluntarily dismissed their federal court ELNY class action lawsuit
, without prejudice, preserving their right to refile claims and
tolling the statute of limitations. At that time, shortfall payee
attorney Edward Stone characterized the voluntary dismissal as a "strategic decision"
attributable to the Contempt Order which left open the possibility of
additional fines for continued legal efforts to protect ELNY shortfall
payees.

In a letter written to United States District Judge Jesse M. Furman prior to the voluntary dismissal of the ELNY class action lawsuit, shortfall payee attorney Roger Christensen quoted from the 1964 United States Supreme Court decision in Donovan v. City of Dallas: "Early
in the history of our country, a general rule was established that
state and federal courts would not interfere with or try to restrain
each others proceedings. That rule has continued substantially unchanged
to this time."

Christensen's letter continued: "It
could not be more clear that a state court cannot enjoin a federal
action or use contempt proceedings to preclude citizens' attempts to
have their claims heard in federal court."

The original class action Complaint named Jeanice Dolan, Daniel A. Malin, Keith Vincent, and other similarly situated ELNY shortfall victims, as plaintiffs,
and Benjamin M. Lawsky, Superintendent of Financial Services of the
State of New York, in his non-regulatory capacity as ELNY's Receiver,
including predecessor ELNY Receivers (Rehabilitator), Metropolitan Life
Insurance Company (MetLife) and Credit Suisse Group, AG (Credit Suisse)
as defendants.

Based upon allegations of defendant misconduct (see: ELNY Allegation Timeline), the original class action Complaint requested the following damages and relief:

"Damages
equaling the full present value of each Class Member's annuity issued
by ELNY, less any amount determined to be owing to Plaintiff under the
terms of ELNY's liquidation;

"Damages equaling the amount of each defendant's unjust enrichment and ill-gotten gains;

"Attorney fees and litigation expenses, to the extent permitted by contract or law;

"Pre- and post-judgment interest, to the extent provided by contract or law; and

March 13, 2013

Attorneys representing Executive Life of New York (ELNY) structured settlement shortfall payees (Objectors) have filed a Motion for Leave to Appeal
dated March 8, 2013 and a supporting Memorandum of Law with the New
York State Court of Appeals (Court of Appeals).

This Motion, requesting
review by New York's highest judicial authority, seeks to reverse a February 6, 2013 decision
by the Appellate Division of the Supreme Court of the State of New
York, Second Department (Second Department) which rejected an earlier legal challenge
to the ELNY Order of Liquidation and Approval of the ELNY Restructuring
Agreement signed by New York State Supreme Court Judge John M. Galasso
on April 16, 2012.

In addition to attorney Edward Stone and the Christensen & Jensen law firm, the ELNY shortfall payees' appellate legal team now includes Michael J. Hutter, Jr., a law professor at the Albany Law School of Union University. Professor Hutter's online biography states he "has
argued over 275 appeals in all of New York's appellate courts and many
of the cases in which he represented the prevailing party are considered
to be landmark decisions."

The ELNY shortfall payees consist of approximately 1456 structured settlement payees whose benefits under the ELNY Restructuring Agreement will be reduced up to 66 percent with an average per payee present value reduction of approximately $632,310 and a total present value reduction of approximately $920,642,947.

The issues being presented to the Court of Appeals requesting their review are the same issues the Second Department rejected:

Due Process - "Did
inadequate notice and the denial of information to Objectors, along
with the selective application of the Civil Practice Law and Rules, deny
Objectors a fair hearing as required by principles of due process?"

Immunity - "Did
the Supreme Court exceed its subject matter jurisdiction or otherwise
err in granting immunity to the Receiver and others in their personal
capacities, where such immunity is not provided for by statute, is
inconsistent with the common law, and is unsupported by evidence?"

Injunction - "Did
the Supreme Court exceed its jurisdiction or otherwise err in
permanently enjoining claims against the Receiver and others in their
personal capacities, where such injunction is not provided for by
statute or the common law, and no evidence was adduced at the hearing?"

Why
should the Court of Appeals grant the ELNY shortfall payees' Motion
seeking leave to appeal? Their attorneys argue the distribution and
protection of Article 74 assets is a matter of public importance and the Second Department decision warrants leave to appeal for the following reasons:

The Second Department's decision to authorize immunity and enjoin suits against the Receiver in his personal capacity "undermines the public's interest in protecting policyholders and receivership assets."

The Second Department's decision is inconsistent with the Court of Appeals' previous ruling in Dinallo v. DiNapoli, "which implicitly recognized that an Article 74 Receiver is no different than any other court appointed private Receiver."

The immunity and injunction provisions included in the ELNY Liquidation Order "exceed the subject matter jurisdiction conferred upon the Supreme Court and is inconsistent with the provisions of Article 74."

In addition, the ELNY shortfall payees' attorneys argue the Court of Appeals should grant leave to appeal "to
determine whether the limited notice and the denial of information to
Objectors, along with the selective application of the Civil Practice
Law and Rules, provided Objectors a fair hearing as required by the
principles of due process" for two reasons:

First, under New York law, "leave to appeal is not required to appeal constitutional issues."

Second, even absent this express right, "the
issue of whether an Article 74 proceeding, or any court proceeding, is
conducted in accordance with principles of due process is a matter of
public importance and concern."

For S2KM's summary of arguments
presented earlier to the Appellate Division of the Supreme Court of the
State of New York, Second Department by attorneys representing Benjamin M. Lawsky, Superintendent of the New York State Department of Financial Services, and the ELNY shortfall payees, see:

March 01, 2013

"It is time to shut down the New York Liquidation Bureau", argues attorney and insurance expert Peter Bickford in his opinion article titled "ELNY Debacle Exposes Serious Problems" which is featured as the cover story in the February 18, 2013 issue of Insurance Advocate magazine.

Bickford's article is accompanied by a second Insurance Advocate opinion article written by Edward S. Stone, an attorney who represents 40 ELNY structured settlement shortfall payees.

In his article, titled "ELNY Opinion Unjust to Victims", Stone accuses
Benjamin M. Lawsky, Superintendent of New York's Department of
Financial Services and his predecessors (Superintendent), the New York
Liquidation Bureau (NYLB) and their agents of "concealment, fraud, waste and mismanagement".

Bickford's article further asserts the ELNY liquidation impacts the entire insurance industry, "including the guaranty fund structure and the growing nationwide debate on State v. Federal regulation of insurance." Bickford states: "[t]he
attacks against continued state regulation of the business of insurance
is focused primarily on solvency and unless the states can show that
they have appropriate standards and ability to enforce those standards
the attacks could result in a sea change in regulation."

Bickford maintains the Superintendent should recognize the "hollowness" of his recent legal victories: Judge John Galasso's civil contempt order and the denial of an appeal challenging Judge Galasso's ELNY liquidation order approving the ELNY restructuring agreement. The ELNY liquidation "fully exposed the Bureau for its decades-long covert mismanagement of insolvent insurance companies" according to Bickford.

What Bickford finds most surprising about the ELNY liquidation is:

"[T]he
unwillingness of the administration, the courts, the legislature and
the industry to admit the scope of the ELNY disaster and the failings of
the insolvency process, and to take appropriate action to remedy these
systemic problems"; and

"[T]he lengths that the
administration and the courts have gone to in order to preserve the myth
of the Bureau’s fiduciary role without fiduciary accountability, or to
protect it from any form of meaningful external investigation or
scrutiny."

Bickford's bottom line: it is time to shut down the NYLB!

Bickford's argument, which echoes and expands criticism of the NYLB published in LifeHealthPro's 2012 article titled "The Complete ELNY Saga - 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Lives", runs as follows:

The NYLB is not defined under New York insurance law.

The
NYLB is not a state agency and not subject to either audit by the State
Comptroller or the Freedom of Information Act according to a decision (Dinallo v. DiNapoli)
by New York highest state court.

The NYLB is not required to
file any plan or reports with the courts supervising receivership
estates or to provide any status reports to policyholders or creditors.

Once
under NYLB control, an insurer is no longer subject to regulatory
oversight and no longer files any reports or financial statements.

The NYLB's lack of accountability over decades has made it a breeding ground for corruption and abuse.

In future Insurance Advocate articles, Bickford promises to "explore
how the process should and can work efficiently and truly for the
benefit of the victims of an insolvency, and what course the legislature
with the support of the regulators and the industry could take to
successfully and meaningfully restructure the insolvency process."

"The
blanket immunity and broad injunctive relief granted in the ELNY
liquidation permits the Superintendent, the NYLB and their agents to
hide the fraud, waste and mismanagement that doomed ELNY behind the
pretext of court supervision.

"The contempt sanctions
issued against the victims and their attorneys for doing the
Superintendent’s job are a blatant attempt to intimidate the plaintiffs
into abandoning their claims.

"Sadly, instead of
helping the victims of this tragedy, the Superintendent is choosing to
blame and punish them – and he’s using ELNY’s assets and the court
system to do it."

February 18, 2013

Three Executive Life of New York (ELNY) structured settlement
shortfall payees (objector respondents) and their legal counsel have
filed a Notice of Appeal dated February 14, 2013 challenging "each and every part" of a Contempt Order issued January 25, 2013 by New York Supreme Court Judge John Galasso "on questions of both fact and law".

Judge Galasso's Contempt Order:

Responded to a federal class action lawsuit filed November 8, 2012 by the three ELNY structured settlement shortfall payees, as plaintiffs, against Benjamin M. Lawsky,
Superintendent of Financial Services of the State of New York, in his
non-regulatory capacity as ELNY's Receiver, including predecessor ELNY
Receivers (Superintendent), Metropolitan Life Insurance Company and
Credit Suisse Group, AG, as defendants.

Determined
the federal class action lawsuit violated three ELNY injunctions:
injunctions contained in the ELNY Rehabilitation Order (1991) and the
ELNY Rehabilitation Plan Approval (1992) as well as an injunction in
Judge Galasso's April 16, 2012 ELNY Liquidation Order which states: "All
persons are enjoined and restrained from commencing or further
prosecuting any actions at law or other proceedings against ELNY or its
assets, the Receiver or the New York Liquidation Bureau, or their
present or former employees, attorneys, or agents, with respect to this
proceeding or the discharge of their duties under Insurance Law Article
74."

Imposed a fine, payable by the ELNY
shortfall payees’ legal counsel to the Superintendent for costs,
disbursements and reasonable attorney’s fees the Superintendent had
incurred defending the federal class action and for pursuing the
contempt application plus potential additional legal expenses assuming
the Superintendent achieved a favorable result in the concurrent appeal of the ELNY Liquidation Order which was denied February 6, 2013 by the Appellate Division of the Supreme Court of the State of New York, Second Department.

Acknowledged: "This Court is not empowered to dismiss the federal complaint outright."

Following
Judge Galasso's Contempt Order and the denial of their Liquidation
Order appeal, attorneys representing the structured settlement shortfall
payees voluntarily dismissed their ELNY class action lawsuit without prejudice preserving their right to refile claims and tolling the statute of limitations.

Attorney Edward Stone characterized the voluntary dismissal as a "strategic decision"
attributable to the Contempt Order which left open the possibility of
additional fines for continued legal efforts to protect ELNY shortfall
payees.

The objector respondents and their legal counsel, attorneys Stone, Roger Christensen and Karra Porter,
have six months to perfect their appeal of Judge Galasso's Contempt
Order with the same appellate court that denied their earlier appeal of
the ELNY Liquidation Order. Based upon previous court filings and
out-of-court statements, they are expected to argue, in part, thatJudge Galasso's Contempt Order violates the United States Constitution.

In a letter written to United States District Judge Jesse M. Furman prior to the voluntary dismissal of the ELNY class action lawsuit, attorney Christensen quoted from the 1964 decision of the United States Supreme Court in Donovan v. City of Dallas: "Early
in the history of our country, a general rule was established that
state and federal courts would not interfere with or try to restrain
each others proceedings. That rule has continued substantially unchanged
to this time."

Christensen's letter continued: "It
could not be more clear that a state court cannot enjoin a federal
action or use contempt proceedings to preclude citizens' attempts to
have their claims heard in federal court."

February 07, 2013

The Appellate Division of the Supreme Court of the State of New York, Second Department, has denied an appeal
challenging the Executive Life of New York (ELNY) Order of Liquidation
and Approval of the ELNY Restructuring Agreement signed by New York
State Supreme Court Judge John M. Galasso on April 16, 2012.

Alleged Judge Galasso "erroneously
denied objectors' request to reject the proposed agreement of
restructuring in connection with the [ELNY] liquidation";

Further allegedJudge Galasso's order:

"[I]mproperly grants and/or continues certain injunctions and immunities and discriminates against the objectors";

"[C]reates impermissible sub-classes of claimants"; and

"[R]eflects
the courts erroneous denial of objectors' requests to adjourn the
hearing ... due to a lack of proper notice of such hearing."

Sought to compel:

The Superintendent, as ELNY's Rehabilitator, "to
provide certain discovery necessary to, among other things, allow
objectors to demonstrate why the plan should not be approved and submit a
viable competing restructuring plan";

Judge Galasso "to unseal certain documents submitted to the court by the rehabilitator"; and

Further sought to allow the objectors "to
present evidence (in the form of live testimony by certain witnesses)
rebutting the receiver's experts and otherwise showing that the
proposed-liquidation plan should not have been approved."

The Appellate Court rejected all of these allegations and denied further relief.

The brief appellate opinion focused primary on due process issue. The Appellate Court stated: "[t]he fundamental requisite of due process of law is the opportunity to be heard" and concluded the ELNY shortfall payees had not been denied due process "either in the manner in which the notice was provided to them or in the conduct of the hearing."

Concerning due process, the Appellate Court reasoned: "The
notice mailed to the last known addresses of the ELNY annuity payees
was reasonably calculated to apprise them of the pendency of the
liquidation proceeding and the execution of the proposed agreement, and
to afford them an opportunity to be heard, and, thus, satisfied due
process.... Moreover, the record does not support the contention that the hearing was "an unfair proceeding."

The appellate opinion summarily dismissed the immunity and injunction issues. "There
is no merit to the contention that the Supreme Court lacked subject
matter jurisdiction to include, in the order approving the agreement,
provisions which granted the receiver for ELNY judicial immunity and
preliminary injunctive relief," the Appellate Court stated. "Furthermore, such relief was appropriately granted in the order."

Additional ELNY Developments

The ELNY appellate court decision follows a civil contempt order
issued by Judge Galasso January 25, 2013 in which he sanctioned legal
counsel for three ELNY structured settlement shortfall payees for filing
an ELNY class action lawsuit in the United States District Court Southern District of New York. The attorneys issued a press release
January 28, 2013 announcing their plan to appeal the contempt order.
The ELNY class action lawsuit is still pending despite arguments on
behalf of Superintendent Lawsky seeking dismissal.

Addendum: subsequent to publishing this blog post, S2KM learned the ELNY class action lawsuit has been voluntarily dismissed without prejudice. Please see this S2KM blog post for details.

January 28, 2013

Attorney Edward Stone and representatives of the Christensen & Jensen law firm, who are representing Executive Life of New York (ELNY) structured settlement shortfall payees in multiple legal actions, have responded to a contempt order issued January 25, 2013 by New York State Supreme Court Judge John M. Galasso
with a press release announcing their plan to pursue an appeal with the
Appellate Division of the Supreme Court of the State of New York.

Judge Galasso's contempt order against the ELNY shortfall payee attorneys followed their filing of an ELNY class action lawsuit
in the United States District Court Southern District of New York
(federal court) which Judge Galasso ruled was a violation of existing
ELNY anti-lawsuit injunction orders.

Stone and Christensen & Jensen filed the ELNY class action November 8, 2012 against Benjamin M. Lawsky, Superintendent of the New York Department of Financial Services, (Superintendent) and his predecessors, in their “non-regulatory” capacities as ELNY receivers, claiming breach of fiduciary duty and fraudulent omission among other allegations. The class action complaint also named Metropolitan Life Insurance Company and Credit Suisse Group, AG as defendants.

Judge Galasso's contempt order also included a fine, payable by the ELNY shortfall payee attorneys to the
Superintendent, for costs, disbursements and reasonable attorney’s fees
the Superintendent has incurred defending the federal class action and
for pursuing the contempt application plus potential additional legal
expenses if the Superintendent achieves a favorable result in the ELNY
appeal. For purposes of the fine, the Superintendent's attorney fees are capped at $5000.

New
York State Supreme Court Judge John M. Galasso decided to hold
attorneys for structured settlement victims in civil contempt for filing
a class action lawsuit in the United States District Court for the
Southern District of New York despite acknowledging that "This Court is
not empowered to dismiss the federal complaint outright".

We
are disappointed that Judge Galasso interprets the injunctions as
broader in scope than the immunity provisions contained in the various
orders issued in connection with the failed rehabilitation of The
Executive Life Insurance Company of New York dating back to 1991. On the
other hand, we agree that Galasso is not empowered to dismiss the
federal complaint and we look forward to the day when the victims of
this tragedy will have a chance to shed light on what actually
transpired with ELNY over the past 21 years. We intend to do everything
we can to shed light on what led to this insurance industry failure of
epic proportions.

For more than 21 years,
victims have been kept in the dark while assets set aside to provide for
their long term needs were squandered on the Superintendent's watch. We
asked the Superintendent to look into the single largest failed effort
at "Rehabilitation" in the history of the State of New York and he
refused. We regret Superintendent Lawsky's decision to pursue contempt
sanctions and we obviously interpret the injunctions differently than
Judge Galasso does. We plan on pursuing an appeal on substantive and
constitutional grounds with the Appellate Division."

Additional Resources

For additional S2KM reporting about the ELNY contempt proceeding, see: